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1. BANANAS: THE PRODUCTION CHAIN
In 1996 world production of the most important fruits was around 400 million tons. Bananas compete with grapes for second place behind citrus, both accounting for 13-14% of total world fresh fruit production. Banana production has been increasing by around 3% per year over the last decade.
Bananas are grown in all tropical regions and are one of the oldest known fruits. Because they are used as a staple food, they are of importance for domestic consumption, growing quickly and being harvested the whole year round. Since the introduction of the cultivated banana onto the US market 100 years ago, banana trade has increased rapidly. Currently, about 20% of total production is entering world trade.
World trade is dominated by three companies, Dole Foods, Chiquita Brands and Fresh Del Monte Produce, with over 100 years’ presence in banana plantation production in Central America and Colombia, and together controlling 65% of world exports. They are followed by the Ecuatorian company Noboa, which controls another 10%, and the European company Fyffes, which controls some 6-7%.
With the integration towards a single European market, the traditionally different supply sources of European and US companies led to a very complex European trade regime which has been attacked ever since it became effective in July 1993. In the past 5 years, it has dramatically influenced developments within the sector.
Table 1:
1996: 57m. tonnes, annual increase 3%
4 major producers 45% world production:
India, Brazil, Ecuador, Indonesia
Cultivation: Plantations (export);
independent growers (domestic/export)
Main companies with plantations:
Chiquita Brands, Dole Food , Fresh Del Monte Produce PRODUCTION
1996: 79% of total production:
Asia (94%); Africa (95%);
Central America (45%); South America (70%)
In main export countries only 20-25% DOMESTIC MARKET
1996: 11,5m. tonnes / export value $4bn.
Major exporters:
Latin-America: Ecuador, Costa Rica, Colombia
Asia: Philippines
ACP: Windward Islands, Ivory Coast, Cameroon
Main traders:
Dole, Chiquita, Del Monte, Noboa, Fyffes EXPORT
A strict system is needed to guarantee the quality of bananas on the market, leading to vertical integration
All major companies have their own reefer vessels
Main ports USA: Gulport, Wilmington. Philadelphia
Europe: Antwerp, Hamburg Livorno, Dover
Company owned or national agents
Distribution increasingly in direct partnerships with retail chains PACKHOUSES
EXPORT HARBOUR
TRANSPORT
IMPORT HARBOUR
RIPENING
DISTRIBUTION
RETAILCHAINS
Major importers 1996:
EU15 (30%), USA (30%), Eastern Europe (12%), Japan (8%) CONSUMPTION
2. BANANA PRODUCTION
FAO estimates for banana production for 1996/97 indicate a production increase to around 57m. tonnes, up from 45m. in 1989 and around 38m. at the beginning of that decade.
Six main producer countries (India, Brazil, Indonesia, Ecuador, Philippines, and China) account for 57% of total world production.

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Indonesian production has been underestimated, but has been increasing significantly over the last decade.
As Figure 2 a) shows, China, Ecuador and Indonesia have known the biggest increase in production, which has more than doubled in the last decade. In Africa growth has been less, and production is almost totally directed at the domestic market (96%).

Fig. 2 a). Banana production Source FAO 1997
At the start of the nineties, expectations of rapid growth due to the opening up of world markets led to the expansion of banana production, especially in the export countries Ecuador, Philippines, Colombia, and Costa Rica.
The introduction of the EU banana regime has obliged the companies to introduce major restructuring which has been especially felt in Central America. But production in the Caribbean also came under heavy pressure to improve efficiency.

Fig. 2 b) Banana production 1996 Source FAO 1997
Bananas are cultivated in two different systems:
- Export directed plantations: Up to 1,000’s of hectares with advanced production and logistic technique. A system of units in different stages of growing and ripening, traversed by irrigation systems and banana rails to the packhouses guarantees a steady harvest throughout the year. The companies, as well as bigger producers and co-operatives, use this system. The plantations are most common in Central America, Colombia, and the Philippines. In other export countries, like Ecuador, they normally have a smaller acreage. Plantation harvests of around 2,000-2,500 boxes (of 18,2 kilo/ha) are common, but differ from the more traditional ones with 1,300-1,500 boxes/ha up to 3,700 boxes/ha on the most modern plantations in Costa Rica.
With the arrival of US companies in Africa (Cameroon and Ivory Coast), plantations have been set up for export into Europe. Indonesia , because of low labour costs, attracts investment in plantations.
- Smallholdings directed at the domestic market: With lower inputs, and often less productive soils, these farms produce smaller bananas of a lower quality. Production levels are also lower, from 200-300 boxes/year up to 1,000 boxes/year, depending on soil, climate and combined cultures (e.g. inter-cropped with cocoa bushes). Except for the Caribbean Islands, where smallholders export 80% of their production.
2.1 Production costs
Because of the different systems, production costs differ widely and are calculated to be about 2-3 times higher in traditional production. But available data also vary and are difficult to compare because of different calculation methods.
Table 2: Production costs per box, various estimations in $US
FAO (Ex-Finca)
1994 CIRAD (FOB)
1995
*) BANDECO
1997
FOB ex-finca Novotrade
1997
FOB ex-finca
Ecuador 2.95 2.95 3.70 3.29 5.01-5.81 4.70-5.40
Costa Rica 3.25 3.25 5.56 4.78
Colombia 3.64 3.64
Honduras 5.22-6.22 4.45-5.25
Ivory Coast (1995) 3.40 8.53
Martinique 12.38
St. Vincente 8.39
Dominica 9.37
*) Based on CIRAD figures of production costs per MT.
Other figures (source unknown) from Costa Rica show the differences according to production levels.
They show a range of $4.71 - $5.93 per box ex-finca, based on production levels from 2,500 - 1,600 boxes/ha on a 250ha plantation.
Some observations that can be made:
• Main differences are due to variations in labour costs, because of salary differences and labour efficiencies due to type of holding. Salary costs in Costa Rica are higher, according to BANDECO $14.87 per day against US$6.42 per day in Ecuador.
• Financial costs are not taken into account, with the exception of the Novotrade figures (around $0.50 per box). CORBANA (Costa Rica) gives total costs for Costa Rica of $6.77, including $1/box financial costs, while average FOB price for 1996 was $5.67 per box. This resulted in a net loss per box of $1.10.
• Similar problems are indicated for Ecuador and Honduras, where contract prices are systematically under production costs. The official minimum price in Ecuador in 1997 was $3.30, which results in a. net loss of $1.50 per box minimum. (Novotrade). In January 1998 the minimum price was increased to $ 5,95 for the high season to June.
• In Honduras in 1996, Dole paid $2.89 per box with a premium of $0.17 for good quality, but sigatoka costs were paid for by Dole. In 1997 this has changed. Dole now pays $3.17 per box with a quality premium of $0.22 per box, but has passed the sigatoka costs on to the farmer. Real sigatoka costs are about $0.45-0.80 per box. (Novotrade).
Therefore, real costs are definitely higher than formal cost calculations allow, especially as financial costs and decent wage levels for labour are not normally taken into account.
Because of that, Indonesia has an attractive cost structure. A recent study of the pineapple sector in the Philippines found that a worker in the Philippines gets $3.50 a day, while in Indonesia $1.61 is paid. In India wages are equally low, and the liberalisation process is leading to increasing foreign agricultural investment
3. THE WORLD MARKET: BASIC FIGURES
Exports were around 7m. tonnes in 1980-85, and these were boosted from 1988 onwards as the companies prepared themselves for a rapid market expansion. The opening up of Eastern Europe and East Asia, the single market in Europe and the progress of the GATT talks lifted expectations for this growth. The World Bank predicted that in a free-trade regime, the ACP countries would lose nearly half of their market to the far more competitive Dollar banana. The Dollar companies anticipated this increase and started to reinvest in plantations in Central America, and also in Asia (Philippines, Indonesia). The three major companies already controlled 70% of world trade in bananas, including half of the EU, and they looked forward to grabbing the rest. At the same time, they increased exports to Europe to raise their market share in case any kind of quota was imposed.
However, it did not work out exactly like that and exports have been around 10-11m. tonnes for the last three years. Eastern Europe did not develop as rapidly as the companies intended, and the European market became restricted for Dollar bananas. Sooner or later, everybody had to adapt to the developments within the European Union which, with nearly 35% of world imports at that time, plays a major role in the world banana trade.

Fig. 3 a). World banana exports Source FAO 1997

Exports
In 1996 an average of 22% of world production, 11.5m. tonnes, entered the world market. Exports are almost totally concentrated in Latin America. The banana companies boosted banana export production in Central America, Colombia and Ecuador during this century to supply the US and European markets. Consequently, these countries have been responsible for around 65-70% of world exports over recent decades. Indonesia is still a small exporter. Given the extremely cheap labour costs, it surely has potential to grow.
Fig. 3 b). Banana exports 1997 Source: FAO 1998

Due to rapid further concentration, Ecuador, Costa Rica and Columbia currently account for nearly 64% of total world exports. Ecuador, especially, increased its exports world-wide. In 1991 exports to the US and the EU accounted for 64% of its total exports, and in 1996, only for 39%. Noboa played an important role, in this change, boosting exports from some 350,000 tonnes in 1991 to 1.5m. tonnes in 1996. New destinations were mainly China, Argentine, Chile and Eastern Europe. In 1993-94, Honduras lost significant market share in Europe, and was not able to compensate by moving into other areas as the big companies were too busy restructuring their Central American business.
Fig. 3 c). Lat-American exports 1991-1997
(1997 prelim.) Source FAO 1998
Imports
Total net imports were around 11m. tonnes in 1996, valued at over US$5bn. The EU and the US remain the major importers, with substantially higher imports than in 1991. Their share in total imports, however, is declining because of growing trade to all other regions.
Major changes are the increasing imports of Former Soviet Union (FSU), and of Russia in particular. For 1999, total imports of 2m. tonnes were expected, of which 875t. tonnes were to Russia, up from 50,000 in 1991.
Fig. 3 d). World imports 1996 Source: FAO 1998
However, imports to Russia dropped in 1996, and figures for 1997 are not known yet. China imported over 500t. tonnes in the first half of 1996 from Ecuador, but shipping stopped as China did not pay. In 1997 exports restarted.
Imports to the EU, including the three new countries, have declined since 1992. But 1992 imports were well up from 1990-91, as companies bumped up imports in case a quota system was introduced. Comparing 1996 with 1990, the imports of the current EU15 countries increased by over 9%. Preliminar FAO figures for 1997 indicate an further increase of EU15 imports to 4,412t. tonnes. Germany is far out Europe’s biggest market with over 1,2m. tonnes.
Table 3: World net banana imports 1990 - 1996 (‘000 tonnes)
1990 1991 1992 1993 1994 1995 1996
Japan 758 803 777 913 929 874 819
EU15 2,948 3,183 3,335 3,218 3,000 3,107 3,158
East-Eur/FSU 154 348 485 579 1,062 1,301 1,028
D'ing countries 603 943 911 1,256 1,302 1,350 1,719
of which China 21 30 93 160 513
Nord-America 3,098 3,228 3,532 3,515 3,697 3,666 3,776
The EU15 figures before 1995 have been adjusted Source: FAO 1998 / Eurostat 1997
Imports per capita differ widely. The United Arab Emirates are the absolute winner with 31.5kg/capita, followed by New Zealand with 20kg/capita. North America, Chile, and most EU countries have per capita imports of 10-14kg/capita compared with 2kg/capita in Eastern Europe and 0.2kg/capita in the Far East and North Africa.. Within the EU Sweden has the highest per capita consumption, around 17,5 kg, followed by Germany, Norway, Portugal and Iceland, all around 14 kg/capita.

Fig. 3 e). Banana per capita import 1995. Source: FAO 1997
3.1 The EU market
Total net supplies, or apparent consumption, in the current EU15 countries increased from 3,559t tonnes in 1990 to 3,886t tonnes in 1996. EU domestic supplies have declined by some 10%, but traditional ACP supplies have remained fairly stable. Dollar imports increased considerably between 1990-1992, as have non-traditional ACP supplies over the last few years.

Fig. 3 f). EU supplies Source: FRuiTrop 1997 Fig. 3 g). EU imports 1991-96 Source: Eurostat 1997
The ACP countries, Cameroon and Ivory Coast, where the US companies are investing, have seen the biggest increases. Conditions in the new plantations are comparable with Central America, but with less disease problems at this stage, which means they will be able to compete more easily with the Dollar bananas. Honduras and Panama saw their exports diminish considerably, although Honduras’ exports did go up again in 1996.

But although ACP countries saw increases in their total imports to the EU during this time, their import prices have gone down due to the competition with Dollar bananas. Meanwhile, import prices for Dollar bananas went up because of the quota system. In figure 3 h). a comparison between the French, German (Chiquita) and the US market is made. In the US, not only import prices, but also wholesale and retail margins are significantly lower, which demonstrates the importance of the EU market for the dollar companies.
Fig. 3 h). Import, wholesale and retail prices Source: FAO 1997
In France, import prices and wholesale and retail margins decreased, but import prices decreased most. In Germany, Chiquita wholesale margins improved, even when import prices went down again. Even wholesale margins for other bananas were slightly up. In 1993-94 consumption fell in Germany due to the higher prices. However, an average 5% fall in prices in 1995-96 has helped sales to recover, up 11% in 1995 and 3.5% in 1996.
This seems to confirm the result of a market study of the Gesellschaft für Konsumforschung (GfK) in Germany, which showed that price and quality rather than brand determine consumer purchases. The study was immediately challenged by Chiquita with its own findings that about 50% of consumers buy brands, of which 80% favoured Chiquita!
A comparable slow down in consumption was seen in Scandinavia, where per capita consumption fell due to the price increase following their entry into the EU.
4. EUROPEAN REGULATION
At the end of the eighties, existing differences between the different banana companies seemed to be well established and, facing the prospect of opening up huge new markets in Eastern Europe and Asia, it only seemed to be a question of boosting banana production to assure ‘fruitful’ development of the banana business. But life turned out not to be that easy. With the restricted EU market, and no Eastern-European miracle, even big companies like Chiquita turned out not to be untouchable. With the introduction of the EU banana regime in 1993, the world banana market definitely changed.
First, the companies had to define their position with regard to the new regime in the EU, which accounted for some 35% of world imports, and develop a new market strategy. And now, five years later, the cards seem to have been reshuffled and companies will have to face modification of the 404/93 regime, and possibly eventual deregulation. Meanwhile, the whole fresh-fruit sector has become far more competitive. Again, the fruit companies have to define the key elements of a successful strategy.
4.1 EU regulation
With integration of the European market, the EU tried to combine two main objectives:
- to create an integrated market for bananas harmonising different banana trade agreements,
- to guarantee that access to this market for their traditional ACP and European suppliers was not hampered by the foreseen influx of cheap Latin American bananas.
The complicated 404/93 trade mechanism, introduced on 1 July 1993, was the result.
The EU established four categories of suppliers, each receiving different treatment:
1. EU producers (mainly Canary Islands, Martinique and Guadeloupe), covered by internal aspects of the common market. For this category, income support up to 854,000 tonnes is guaranteed in case prices fall below the costs of production. This mechanism has been used for several years.
2. Traditional ACP countries, i.e., the ACP banana suppliers in the years preceding the single market, have duty-free access up to a maximum amount of 857,700 tonnes per year.
3. Non-traditional ACP countries (e.g. Dominican Republic) and quantities from traditional ACP countries above the ceiling of 857,700 tonnes.
4. Third countries, the so-called 'Dollar' countries which, together with category 3 producers, share a tariff quota of 2m. tonnes - duty free for non-traditional ACP countries and with a tariff of 75 ECU per tonne for the Dollar bananas. The quota to be increased to 2.5m. tonnes with the accession to the EU of Sweden, Finland and Austria.
The Dollar allocation was granted to trading companies in the following way:
* ‘A’ licences: 66.5% reserved for traditional traders in Dollar bananas;
* ‘B’ licences: 30% reserved for established operators of Community and/or traditional ACP bananas;
* ‘C’ licences: 3.5% for ‘newcomers’ with ambitions within the sector.
The allocation of Dollar quotas to the ACP companies was designed to cross-subsidise the expensive ACP bananas with some Dollar banana quota rent and thus strengthen the position of the ACP companies in relation to the Dollar companies. At the same time, it led the Dollar companies to invest in ACP countries to build rights to future Dollar quota allocation within this category.
Within this tariff quota, each import category is again subdivided according to specific economic activities, such as producing, purchasing, transport and ripening, making the future allocation of 100% of actual quotas only possible if a company operates in all economic activities. Therefore, this last subdivision directly resulted in the need for further ongoing vertical integration to guarantee the future allocation of quotas.
Due to the insufficient level of quota allocation, the system has resulted in an active trade in Dollar licences which, depending on demand, have been fluctuating enormously up to around $7-8 per box. The total cash value of the licences is calculated to be over $1bn. annually.
4.2 The WTO dispute
The system has been under attack from the moment it became effective. Five main Latin American growers (Costa Rica, Venezuela, Colombia, Guatemala and Nicaragua) protested against the system under the rules of GATT shortly after its coming into effect. GATT found that the EU import regime contravened GATT rules. The EU did not accept the findings, but offered to settle with the named countries in exchange for no further dispute. All but Guatemala signed a compensatory 'Framework Agreement' , which was included in the last phase of the Uruguay Round in April 1994. Ecuador and Honduras did not participate not being members of GATT at that time.
The Framework Agreement allocated quotas for the involved countries, which meant that national governments were entitled to distribute export licences. The banana companies protested as they saw an increase in the problems they already had with the system. Chiquita, especially, decided to actively oppose the system, and has done so ever since with various complaints.
The official case was brought to the WTO by the US, and in 1996 a dispute panel was established. In the final ruling, the WTO dispute panel found that the EU’s tariff quota regime for negotiating and allocating quotas acted in a discriminatory way. The quota system as such was not condemned. The EU immediately confirmed its intention to fully comply with the dispute ruling and its recommendations. It has until the end of 1998 to modify the EU regime.
4.3 The future of the EU regime
In designing the modification of the current 404/93 regime, the EU has chosen to continue a managed market for the import of bananas. The EU proposal is to keep the 2.2m. tonnes annual quota that has been in place since mid-1994 on ‘dollar’ fruit. A tariff of Ecu75 per tonne is payable up to this quantity. An additional 353,000 tonnes is proposed, reflecting the expansion of the EU (Sweden, Finland, Austria) with a duty of Ecu300 per tonnes for third countries and Ecu100 per tonne for ACP countries.
The total ACP preferential quota would also remain, although there would not be country specific quotas any more. To compensate the ACP countries for the changes in the regime, the EU proposes to award Ecu530m. in transitional aid over ten years to banana producers in the ACP countries. However, this amount, spread over some twelve countries, will be less than the actual amount received in cross-subsidies through the sale of quota allocations.
The main change is the redistribution of the controversial licensing system, where the so-called ‘B’-licences, granted to ACP producers, will disappear. However, it is not at all clear how this redistribution will take place. In the new proposal, only countries with a substantial export interest might remain with a country-specific quota. Regarding tariff-quota management, a system based on historical reference (but what period?) seems to be the most likely to be installed. But other options like an auction system are also being evaluated.
A system based on historical references will not only reinforce the position of the big banana companies and again grant them a subsidy of about US$1 bn, the cash value of the licenses. It also does not provide opportunities for market access to new operators, including ‘Fair Trade’ operators. The Dutch fair trade operators currently spend one third of total costs on the purchase of licences, while at the same time, they are able to both pay the farmer a higher price and compete on price in the market. On the other hand, an auction system could open up opportunities for newcomers and provide incentives for market innovation.
Meanwhile, supporters of further liberalisation, like the German firms and Chiquita, have already questioned whether the Brussels proposals will be acceptable to the WTO, which has until the end of 1998 to approve the new scheme’s implementation.
5. CHANGING COMPANY STRATEGIES
The ways that the banana companies have been adapting to the EU regime and the changing world market have been various. Chiquita has taken a very formal position from the start. It seemed neither to believe in the introduction of the mechanism nor, once it was installed, to trust in its imminent abolition. Consequently, Chiquita adopted a far more formal position than the other companies, which adapted themselves in a more pragmatic way to the new situation.
The EU regime accentuated the differences between the EU and US companies although, in the end, all are involved in the same fight for a good mix between sourcing ACP and Dollar bananas to obtain maximal access to Dollar licences. But not all survived and Geest, the former main UK banana company, did not succeed and sold its banana division in 1995.
In Table 4 a short overview is given of the main companies, their sales and estimated market shares in 1992 and 1994, together with their anticipated positions for 1997.
Table 4: Main companies, results and market shares 1992-97
SALES ($m.) Profit/loss
($m.) World Share
(% of boxes) EU
(% of boxes) USA
(% of boxes)
1992
Chiquita Brands
Dole Food Company
Fresh Del Monte Produce
Fyffes
Geest
2,723
3,120
900
890
n.a. (284)
16
(63)
47
5 525m.
34%
20%
15%
2-3%
3-4% 200m.
* 30%
12%
7-8%
4-5%
5-6% 165m.
1995
Chiquita Brands
Dole Food Company
Fresh Del Monte Produce
Fyffes + Geest
Noboa 2,566
3,804
1,068
1,700
- 9
89
(72)
65
- 610m.
*25 %
22-23 %
15-16 %
7-8 %
12 % 180m.
19 %
15-16 %
8 %
17-18 % 170m.
35%
35%
18%
1%
1997
Dole Food Company
Chiquita Brands
Fresh Del Monte Produce
Fyffes
Noboa
4,336
2,434
* 1,200
1,460 160
0
* 100
54 625m.
25-26 %
24-25 %
16 %
6-7 %
13 % 210m.
18-19 %
15-16 %
10-11 %
16-17 % 200m.
Sources: Eurofood, Fruchthandel, Reuters, Annual Reports, Solidaridad, Euro PA (1994), ADL (1995), author’s estimations
The winners and losers are clearly shown in this overview. The main conclusion is that Chiquita is being overtaken by Dole due to the loss of market share Chiquita has seen in the EU and elsewhere, owing to the more aggressive strategies of Dole Food and Del Monte. Dole Food is the world’s leading fresh fruit company and, although Chiquita is still mentioned as the banana leader, the differential between them has grown very small. Dole is clearly the winner in market strategy.
This conclusion seemed to be confirmed by changes in the control of banana production which were to the disadvantage of Chiquita. In Honduras, Guatemala and Ecuador, Dole has increased its control, while in Costa Rica, Del Monte is expanding, and in Asian production, Del Monte and Dole are dominant.
The impact of the EU regime on the market in the last few years has been considerable and has emphasised already existent general tendencies. More details are given in annexed overviews for each company.
5. 1 Diversifying banana supply sources.
Traditionally, US companies concentrate in Central and South America. To cover the Asian market,. Dole and Chiquita worked from plantations in the Philippines. At the start of the nineties, Chiquita and Dole also entered Indonesia, opening up banana plantations in joint ventures with the Sinar Mas group. The production of these plantations is aimed at exports within the Asian region. Indeed, last years Indonesian export to Japan was increasing. In 1997 Del Monte also entered that country. The current position of Chiquita and Dole in Indonesian banana production is not known.
On the other hand, the European companies, mainly sourcing from ACP countries and overseas territories, maintained control by making marketing contracts which were often exclusive with producer associations and/or marketing boards, without direct involvement in primary production.
The establishment of supplier categories within the EU regulation forced both groups to become active in each other’s regions:
- established operators of the Euro and/or ACP bananas: the 30% reserved Dollar licences gave them the opportunity to spread imports from ACP bananas to the more valuable Dollar banana outlets. Geest decided to invest $150m. in a new 3,000ha plantation (Costa Rica). Diseases and labour problems made the investment a financial failure, and after the takeover by Fyffes/Wibdeco, the land was sold to a consortium of Latin American businessmen.
Fyffes expanded its marketing contracts in Central America and Ecuador, and succeeded in spreading its sources over ACP, Euro and Dollar bananas. But Fyffes’s entrance into Honduras (through contracts with independent growers) and Guatemala (production contracts) did not succeed, and now it works mainly through agreements with other traders (a.o. Dole).
- US companies: a foothold in the ACP and/or Euro banana countries assured them a future part of the 30% Dollar licences reserved for this category.
Indeed, all US companies have invested in Cameroon and/or Ivory Coast, mainly through joint ventures with French companies (e.g. Dole/Compagnie Fruitiere) and tried to get a foothold in the market for Caribbean bananas. To obtain control over Euro bananas, they invested in Spain and have deals with co-operatives on the Canary Islands (Fyffes/Coplaca, Chiquita/Coslo).
The involvement of the US companies in production in the ACP/Euro region increased from 80,000 tonnes in 1992 to 400,000 tonnes in 1994. Recently, Dole considerably expanded its control in the Ivory Coast via its participation in Compagnie Fruitiere, which acquired 67% of SCB, Ivory Coast’s leading banana supplier.
The question is what the consequences of abolishing B licences, as proposed by EC Commission, will be. For the Dollar companies, especially Dole and Del Monte, which have meanwhile established themselves in the ACP countries, there is not much of a problem, as their new plantations are modern enough to compete. But for Fyffes, which swapped at least part of its shipping agreement from the Dollar countries for licences, the future is less clear. And the other ACP traders will lose their income from the sale of B licences. Moreover, the additional support proposed in the modification of the EU regime will not cover this loss, and will be channelled through other (aid) channels.
5. 2 Vertical integration
US banana companies have been functioning along the whole production chain from production to import/ripening. However, the EU rule, according to which licences are allocated on the basis of market share in the different categories of economic activity (purchasing/producing, distribution/transport, ripening/wholesale), lead to the further integration of operations. Moreover, this vertical integration was stimulated as a result of the Marrakesh Agreement, which rules that companies need not only import licenses but also export licenses from the countries involved. This lead to further investments in production.
The US companies have been looking to expand their European network in Southern Europe. Again, Dole especially has been expanding, combining all stages of industry and aiming at volume growth. It successfully bought Pascual Hermanos, the troubled company abandoned by Chiquita, and made it profitable again in a short time.
The position of independent importers has become difficult. As long as they do not operate in the whole chain, their licence volume will decrease. For example, Cobana Fruchtring, when it lost its contacts with Chiquita, had to survive through agreements with companies like Geest, Fyffes and Pomona. Fyffes made optimal use of this situation and realised joint ventures with over ten companies within three years.
The complicated license system has generated a lively trade in licences, which makes companies less dependent on the official licence distribution. But at a high cost, the estimated value is nearly $1bn. The amount to be paid for the licences varies widely from $0.50-$7.00 per box, which means that at bad times it comprises more than 50% of the total import price.
5. 3 Diversifying markets
The expansion into new markets is a general trend within the food industry that is mirrored in other industries. The increasingly saturated markets in the USA and Europe make continuing growth more difficult, and efforts are directed to strengthen positions in selected core activities. Volume growth through market expansion is sought elsewhere in developing regions. All main companies are expanding in Eastern Europe and Asia for that reason. In the banana sector, investments in 1989-91 were directed at global expansion. The restrictions in the European markets led to increased efforts to develop other markets (Near East, South America, Far East), where per capita consumption is still much lower.
The EU regulation has had a double effect. Firstly, the companies are obliged to invest in trade with the EU12 to maintain their import licences and, therewith, their future market share. The EU15 not only accounts for around 30-35% of world imports, but the increased price level for Dollar bananas also makes the loss of market share a double loss. And secondly, the Dollar companies had to invest in export to other countries in order to divert the banana surplus generated by the decreased trade with the EU during 1992-94.
Imports into the EU from Dollar countries diminished by 250t between 1992-1994, the biggest losers being Honduras and Panama. Ecuador was not granted country allocation, but maintained its share of the European market, functioning as a buffer for the banana companies.
The Near East had the biggest increase in banana imports in 1992-93 and is increasingly supplied from Latin America. The three southern countries of America (MERCOSUR) nearly doubled imports since 1992, almost totally supplied by Ecuador. The Former Soviet Union (FSU) market has grown rapidly since 1994, but showed a decline last year. More recent are the increased imports in China. Although the potential is significant, limitations in infrastructure (adequate ripening and storage), may be a constraint in the near term.